CEMP-E/CECW-E
EI 01D010
1 September 1997
CHAPTER 12
12-3. Amount of Required Surety Bonds
SURETY BONDS
The amount included in the estimate should be based
12-1. General
on the contract requirements, the bond rules,
premium rates, and, if known, the actual contractor
a. Surety bonds are three-way agreements
bond cost.
between a bidder or contractor (the principal), and a
second party (the surety), to assure fulfillment of the
Performance and payment bonds are required for all
principal's obligations to a third party (the obligee).
construction contracts of 0,000 or more and some
If the principal obligations are not met, the bond
form of payment guarantee for lesser value contracts
assures payment to the extent stipulated of any loss
(FAR 28.102). The cost of all performance, payment
sustained by the obligee.
bonds, and other types of bonds determined to be
appropriate by the cost engineer are allowable costs.
b. In most Government construction
contracts, these three parties are as follows:
12-4. Rules Governing the Application of
Bond Rates
Three
Under a
Under a
Subcontract:
Party:
General Contract:
a. Bonds are classified as Class A, Class B, or
The Principal
Contractor
Subcontractor
Class A-1, depending on the type of construction to
The Obligee
Government
Contractor
be performed. If the contract is susceptible to two
The Surety
Surety
Surety
classifications, normally the higher rate is applicable
(table 12-1).
12-2. Purpose of Bonds
b. Separate contracts take the same classifi-
cation as a general contract. Neither the classifi-
a. The purpose of surety bonds varies with the
cation nor the rate is changed by subdividing the
type of bond.
work or by the Government's providing certain
materials.
b. Bid bonds or bid guarantee provide an
assurance that the bidder will not withdraw his (her)
c. Subcontracts take the same classifications
bid within the specified period for acceptance and
and rates as general contracts.
will execute a written contract and furnish the
required bonds if the bid is accepted.
d. For states in conformance (nondeviating)
with the Surety Association of America (SAA) rates
c. Payment bonds protect subcontractors,
(table 12-1) where the construction time exceeds the
suppliers, and laborers against nonpayment by the
bond stipulated time of 12 months, add 1 percent of
prime contractor.
the bond premium for each month in excess of 12
months.
d. Performance bonds ensure the contractor
will complete the project as specified and for the
e. For states in conformance (nondeviating)
agreed price. It does not shift responsibility for
with the SAA rates (table 12-1) where the
administering the contract to the surety. A
construction time exceeds the bond stipulated time of
performance bond provides a financial guaranty for
24 months, add 1 percent of the basic premium for
the work and provides the contractor with a method
each month in excess of 24 months.
of freeing his(her) working capital and other assets
which might otherwise be tied up by other forms of
f. For states not conforming (deviating) with
security such as certified checks, retainage, or
the SAA rates where the construction time exceeds
deposits.
the bond stipulated time of 12 months, add 2 per-
cent of the basic premium for each month in excess
12-1
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